CRIMINAL INVESTIGATION CAN TAKE STEPS
TO STRENGTHEN OVERSIGHT OF ITS UNDERCOVER OPERATIONS

Issued on February 3, 2012

Highlights

Highlights of Report Number: †2012-30-014 to the Internal Revenue Service
Chief, Criminal Investigation.

IMPACT ON TAXPAYERS

Criminal Investigation (CI) uses undercover
operations as an essential technique in the detection and investigation of
criminal activity involving tax and money laundering offenses.† Our review determined that weaknesses in the
controls over undercover operations continue to exist.† Given the risks associated with undercover
operations, stronger oversight helps ensure that undercover operations are
properly managed and meet operational objectives, and that Federal tax dollars
are used in the most efficient manner to ensure the publicís confidence in CIís
investigative techniques.

WHY TIGTA DID THE AUDIT

This audit was part
of TIGTAís Fiscal Year 2011 Annual Audit Plan and addresses the major
management challenge of Tax Compliance Initiatives.† This review is a follow-up to TIGTAís Fiscal
Years 2001 and 2002 reviews of CI undercover operations.† The overall objective of this review was to
determine whether CI has effective policies and procedures to ensure undercover
operations are properly monitored, expenses are appropriate, and any income
earned is properly controlled.† In
addition, TIGTA evaluated the practices used to protect the safety of special
agents working on undercover operations.

WHAT TIGTA FOUND

TIGTA found that other
Federal law enforcement agencies respect CIís undercover program because of the
financial expertise CI special agents bring to a joint investigation.† TIGTA also found that CIís undercover
practices appear to be more thorough in some aspects than other Federal
agencies.†

Although CI
took steps to strengthen controls over its undercover operations in response to
our Fiscal Year 2002 review, TIGTA identified repeat findings and determined that
internal control weaknesses continue to exist because corrective actions were
not implemented sufficiently.† In
addition, some undercover expenditures that could be
considered as questionable did not have documentation indicating the expenditures
were preapproved.†

Although CIís undercover agents
said their training was sufficient and safety was emphasized, TIGTA believes
that additional steps could be taken to protect the identity of undercover
agents.† TIGTA also determined that
financial reviews of undercover operations that earned income, i.e., churning, were not conducted
timely.

WHAT TIGTA RECOMMENDED

TIGTA recommended
that the Chief, CI: †1) modify
existing guidance to include specific criteria regarding when operational and
financial reviews are required, 2) develop a process to alert CI officials that
operational and financial reviews are due, 3) strengthen controls to ensure
that expenditures are properly and timely approved and documented, 4)
strengthen procedures to protect the identity of undercover agents, and 5) ensure that the financial
reviews of undercover operations with churning authority are requested within 90
calendar days after the undercover operation portion of the investigation is
concluded.

In their response to the report, IRS officials agreed
with the recommendations and plan to take corrective actions.

READ THE
FULL REPORT

To view the report,
including the scope, methodology, and full IRS response, go
to: †